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Financial Alphabet Soupfor the HR Executive
Presented by:Robert Bartolacci
EVP/CFO, Modern Group
Adjunct Asst. Professor, Carnegie MellonInstructor: Duquesne UniversityInstructor: St. Vincent College
Copyright Robert Bartolacci 2013
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Financial Alphabet Soup
As executives we all basically want the same things (not necessarily in this order!)
Forward the success of the organization Forward the success of our department Forward our personal & professional successes
Copyright Robert Bartolacci 2013
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Financial Alphabet Soup
Each executive however (HR & finance) has particula r objectives as well
Forward the success of the organization
For finance, the success of the shareholders may be targeted For HR, the success of the employees may be targeted
Copyright Robert Bartolacci 2013
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Financial Alphabet Soup
Each executive however (HR & finance) has particula r objectives as well
While the targets often overlap (particularly since finance folks are employees who appreciate HRs help! And since HR understands
the importance of the shareholder, and may also BE stockholders).
Sometimes, these objectives can seem at odds
Copyright Robert Bartolacci 2013
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Financial Alphabet Soup
Good news! There is common ground a common language.
Copyright Robert Bartolacci 2013
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Financial Alphabet Soup
Objectives:
Understanding the goals and focus of the CFO (it might not be what you expect)
Relating HR goals and initiatives to the CFOs goals and focus
Understanding some basic financial terminology necessary for senior discussions
Copyright Robert Bartolacci 2013
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Copyright Robert Bartolacci 2013
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The employees want need
We cant afford
No
mid
dle
grou
nd
HR Finance
Incorrect Managerial Paradigm Correct Managerial Par adigm
What is best for the organization
How does it benefit the mission or shareholder
What is the risk
What is the reward
Financial Alphabet Soup
Copyright Robert Bartolacci 2013
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Financial Alphabet Soup
Objectives:
Understanding the goals and focus of the CFO
Increase shareholder value (for profit)
Achieve the mission (non-profit)
Book & record keeping (most started as accountants)
Most reward for least risk
Copyright Robert Bartolacci 2013
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Financial Alphabet SoupObjectives:
Understanding the goals and focus of the CFO
Increase shareholder value (for profit)
Despite a sincere desire to provide great products or excellent customer service, the for-profit organization exists for one purpose make the shareholders rich.
401k, pension plans, etc.
Widows & orphans
Copyright Robert Bartolacci 2013
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Financial Alphabet Soup
Objectives:
Understanding the goals and focus of the CFO
Achieve the mission (non-profit) Altruistic and or artistic philosophies of a non-profit may
be contrary to traditional cost control CFO-thinking. Help the CFO understand the intended-metric improvements relative to the mission.
Copyright Robert Bartolacci 2013
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Financial Alphabet Soup
Objectives:
Understanding the goals and focus of the CFO
Achieve the mission (non-profit) e.g. Hiring an individual that may require certain
environmental adaptations, such as stair ramps, or auditory aids, may be accordingly more costly than hiring a person that does not require such adaptations. However, the organizations mission is to promote diversity & equal opportunities regardless of such personal challenges, etc.
Copyright Robert Bartolacci 2013
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Financial Alphabet Soup
Objectives:
Understanding the goals and focus of the CFO
Accounting background
CFOs typically begin as an accountant, then serve as a controller. The paradigm or inclination is to therefore control or keep costs low.
Understanding this inclination can help to refocus the CFO toward mission achievement or shareholder benefit as presented through your HR initiative.
Copyright Robert Bartolacci 2013
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Financial Alphabet Soup
Objectives:
Understanding the goals and focus of the CFO
Most reward for least risk
Personnel and related costs are typically the largest organizational cost. Therefore HR plays a huge role in risk mitigation and reward achievement.
e.g. Recommendation to outsource the organizations daycare workforce definitely more costly, but diverts some of the liability away from the organization.
Copyright Robert Bartolacci 2013
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Financial Alphabet Soup
Objectives:
Relating HR goals and initiatives to the CFOs goals and focus
How will the HR item directly or indirectly lead to shareholder benefit or mission achievement ?
Before and after metrics,or financial impact (efficiency, effectiveness, or compliance)
What reward does the HR item bring, or how does it mitigate risk
QUANTIFY, QUANTIFY, QUANTIFY!!!
Copyright Robert Bartolacci 2013
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Financial Alphabet Soup
Objectives:
Relating HR goals and initiatives to the CFOs goals and focus
How will the HR item directly or indirectly lead to shareholder benefit or mission achievement ?
A large client has the requirement of having their employees be satisfied 90% (or more) of the time wh en interacting with your firms customer service cente r. The rating is currently 80%. Failure to achieve 90% yi elds a $40,000 annual penalty. Therefore, training to imp rove should directly benefit the shareholders.
Copyright Robert Bartolacci 2013
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Financial Alphabet Soup
Objectives:
Relating HR goals and initiatives to the CFOs goals and focus
Before and after metrics, or financial impact (efficiency, effectiveness, or compliance)
Assume for the moment that the CFO is indifferent b etween staffing the organization with an appropriately diverse workforce , or a colony of mold spores (if the salaries were equal). How does the HR executive convince the CFO that EEOC or other imperatives hav e to be met and may come with a cost (e.g. use of consultants, lega l advisors, etc.)?
Copyright Robert Bartolacci 2013
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Financial Alphabet Soup
Objectives:
Relating HR goals and initiatives to the CFOs goals and focus
Before and after metrics, or financial impact (efficiency, effectiveness, or compliance)
Consider relating the HR objective to managerial me asures of Efficiency, Effectiveness, or Compliance.
Efficiency: Relates to cost savings or profit enhan cement Effectiveness: Relates to achievement of a particul ar outcome Compliance: Success or failure measure of meeting a particular directive
Copyright Robert Bartolacci 2013
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Financial Alphabet Soup
Objectives:
Relating HR goals and initiatives to the CFOs goals and focus
Before and after metrics, or financial impact (efficiency, effectiveness, or compliance)
Efficiency: Relating to cost savings or profit enha ncement
Buying $2000 of work-boots for employees would redu ce workers comp. claims (from ankle injuries) by $7,0 00. More significantly, the reduction in injury-related abse nteeism would also reduce down-time, and overtime / tempora ry labor costs needed to maintain production.
Copyright Robert Bartolacci 2013
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Financial Alphabet Soup
Objectives:
Relating HR goals and initiatives to the CFOs goals and focus
Before and after metrics, or financial impact (efficiency, effectiveness, or compliance)
Effectiveness: Relating to achievement of a particu lar outcome
e.g. The proposed training program will improve pr oduct quality by equipping workers to identify errors in raw materials. Improving quality accordingly reduces w asted time (1 hour per production item at $35 per hour) a nd minimizes wasted product costs (at $15 per ton).
Copyright Robert Bartolacci 2013
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Financial Alphabet Soup
Objectives:
Relating HR goals and initiatives to the CFOs goals and focus
Before and after metrics or financial impact (efficiency, effectiveness, or compliance)
Compliance: Success or Failure measure of meeting a particular directive
Does the organization have all of the necessary pap erwork to support an employees validity to work in the Unite d States?Penalty for failure? Work stoppage?
Copyright Robert Bartolacci 2013
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Financial Alphabet Soup
Objectives:
Relating HR goals and initiatives to the CFOs goals and focus
Before and after metrics or financial impact (efficiency, effectiveness, or compliance)
BACK TO OUR NARROW-MINDED CFO Assume for the moment that the CFO is indifferent between staffing the organization with a n appropriately diverse workforce, or a colony of m old spores (if the salaries were equal). How does the HR executive convince the CFO that EEOC or other imperatives have to be met and may come with a cost (e.g. use of consultants, legal advisors, etc.)?
If the issue is one of regulatory compliance (e.g. EEOC), relate it to compliance and the penalty for failing to meet the requirement. Etc.
Copyright Robert Bartolacci 2013
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Financial Alphabet Soup
Objectives:
Relating HR goals and initiatives to the CFOs goals and focus
What reward does the HR item bring, or how does it mitigate riskA CEO, who was previously the companys HR executive, once told me Bartolacci I dont care what the employees would like how does your request for new carpeting in their workspace benefit the company?
Is it a safety issue (e.g. trip & fall, airborne fibers, etc.)
Is it a productivity issue (e.g. distraction,poor presentation to clients, etc.)
Is it an efficiency issue (e.g. turnover due to poor work conditions, etc.)
Copyright Robert Bartolacci 2013
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Financial Alphabet Soup
Objectives:
Relating HR goals and initiatives to the CFOs goals and focus
QUANTIFY, QUANTIFY, QUANTIFY!!! Virtually everything can be quantified in a business
setting. The income or cost may not be immediate, but can usually be estimated, predicted and quantified.
For example:
Copyright Robert Bartolacci 2013
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Financial Alphabet Soup
Objectives:
Relating HR goals and initiatives to the CFOs goals and focus
QUANTIFY, QUANTIFY, QUANTIFY!!!
Example: Provide better, more costly health insurance
Annually, 10% of our workforce quits and sites poor health benefits as the reason. Statistics show that turnover costs the organization 30% of that persons salary in lost productivity & related costs. 10% of our workforce is $1MM, so 30% of that is $300,000. The proposed insurance improvement would cost $200,000. So, we should be able to save the organization $100,000 ($300k - $200k) by this improvement).
is a lot more sell-able than
keep employees happy & reduce complaints
Copyright Robert Bartolacci 2013
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Financial Alphabet Soup
However, there are times when the CFO should unequivocally and uninterruptedly agree to HRs direction.
When HR insists :
Copyright Robert Bartolacci 2013
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Financial Alphabet Soup
Finance should unequivocally agree when HR insists
That we spend the extra money to get an experience d driver
Copyright Robert Bartolacci 2013
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Financial Alphabet Soup
Finance should unequivocally agree when HR insists
That our restrooms are not OSHA compliant
Copyright Robert Bartolacci 2013
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Financial Alphabet Soup
Finance should unequivocally agree when HR insists
That our daycare center is dangerously understaffed
Copyright Robert Bartolacci 2013
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Financial Alphabet SoupFinance should unequivocally agree when HR insists
That we need a computer use policy
Copyright Robert Bartolacci 2013
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Financial Alphabet SoupFinance should unequivocally agree when HR insists
That we tighten-up the dress code
Copyright Robert Bartolacci 2013
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Financial Alphabet Soup
Objectives:
Understanding some basic financial terminology necessary for senior discussions
Return on Investment
Payback
Expected Outcome
Ad hoc metrics: Showing value in other ways
Copyright Robert Bartolacci 2013
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Financial Alphabet Soup
Objectives:
Understanding some basic financial terminology necessary for senior discussions
Return on Investment
Income SavingsInvestment or Expenditure Investment or Expenditure
Investment: Spend $100,000 to build a company gym
Savings: Reduce healthcare insurance costs by $25,000
Savings $25,000 = 25% ROIInvestment $100,000
Copyright Robert Bartolacci 2013
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Financial Alphabet Soup
Objectives:
Understanding some basic financial terminology necessary for senior discussions
PaybackInvestment Expenditure
Income or Savings Income or Savings
Investment: Spend $60,000 for a sales training course
Income: Expected annual sales increase of $20,000
Investment $60,000 = 3 year PaybackIncome $20,000
Copyright Robert Bartolacci 2013
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Financial Alphabet SoupObjectives:
Understanding some basic financial terminology necessary for senior discussions
Expected Outcome
Event Probability x Penalty or Reward = Expected Outcome
Audit failure 50% x $10,000 fine = $5,000 expected outcome
Your organization is scheduled to undergo a compliance audit. Failure of having the appropriate documentation in place will result in a $10,000 penalty. You estimate that (or 50%) of the files to be audited are incomplete. So, there is a 50% chance that your firm will fail the audit and incur the penalty.
You suggest that for $3,500, you can have an HR consulting firm come in to bring 100% of your files up to standard. Tell the CFO that your suggestion would save the organization at least $1,500 ($3,500 versus the expected outcome of $5,000).
Copyright Robert Bartolacci 2013
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Financial Alphabet Soup
Objectives:
Understanding some basic financial terminology necessary for senior discussions
Ad hoc metrics: Showing value in other ways
HR (like the Accounting department) is a cost-center. They dont make the organization money, they cost the organization money.
Factually, HR brings value to the organization by holding costs down, and avoiding risks. For instance:
Appropriately addressing employee problems and concerns help to avoid lawsuits, accidents, turnover, etc.
Thoughtful selection of benefit plans and structures can change employee behavior, and provides oversight to a costly expenditure.
Training programs may improve productivity, ensure regulatory compliance, reduce turnover and help keep valued employees, etc.
Copyright Robert Bartolacci 2013
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Copyright Robert Bartolacci 2013
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Financial Alphabet Soup
Objectives:
Understanding some basic financial terminology necessary for senior discussions
Ad hoc metrics: Showing value in other ways
HR (like the Accounting department) is a cost-center. They dont make the organization money, they cost the organization money.
Quantify the cost. What is your departments total personnel cost compared to its revenue? Compare that number to peer organizations, industry averages, etc..
If your statistics are better, use that information to prove departmental efficiency.
If your statistics are worse, determine why. If the extra costs add value, praise the purpose for added cost (e.g.
link it to added shareholder value).
If not, improve. Then, talk about your improvement statistics.Copyright Robert Bartolacci 2013
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Financial Alphabet Soup
Objectives:
Understanding some basic financial terminology necessary for senior discussions
Ad hoc metrics: Showing value in other ways
Factually, HR brings value to the organization by holding costs down, and avoiding risks.
Compare, compare, compare.
Against: prior results, internal targets, your peers, and your industry
e.g. we are 100% compliant, while our industry is only 85%. With each penalty being $10,000 per occurrence. Weve passed 3 audits, and accordingly saved $30,000.
Copyright Robert Bartolacci 2013
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Financial Alphabet Soup
Objectives:
Understanding some basic financial terminology necessary for senior discussions
Ad hoc metrics: Showing value in other ways
Appropriately addressing employee problems and concerns help avoid lawsuits, accidents, turnover, etc.
Site specific instances of averted problems Compare to: previous problems, industry or peer problems
Show the comparative savings
Use those savings to support future HR spending.
We had 3 harassment lawsuits two years ago year costing us $75,000 in legal and settlement costs. Last year we spent $25,000 on training and have not had any lawsuits since. Like that 300% ROI, our new initiative will yield similar results.Copyright Robert Bartolacci 2013
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Financial Alphabet Soup
Objectives:
Understanding some basic financial terminology necessary for senior discussions
Ad hoc metrics: Showing value in other ways
Thoughtful selection of benefit plans and structures can change employee behavior, and provide oversight to a costly expenditure.
e.g. A change in copay structure is generating a $300,000 decrease in our benefits cost.
We recommend spending $45,000 of that savings for a Disease-X management program. The program is expected to save $75,000 in costs over the next three years. And, since we lose 70 work days a year (which costs us $20,000) due to Disease-X related absences, the program has historically shown to cut those absences in half.
That is another $10,000 in savings attributable to our oversight. Copyright Robert Bartolacci 2013
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Financial Alphabet Soup
Objectives:
Understanding some basic financial terminology necessary for senior discussions
Ad hoc metrics: Showing value in other ways
Training programs may improve productivity, ensure regulatory compliance, reduce turnover and help keep valued employees, etc.
Get other departments to sing your praises with their metrics.
Seek support from Operations. Gather productivity statistics, survey employees for baseline and follow-up data on suitability for performing their tasks.
Seek support from Marketing. Can the marketing department make hay with the statistics youve gathered and tout our workforce and extensive training?
Copyright Robert Bartolacci 2013
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Financial Alphabet Soup
Summary:
Its all about the numbers.
CFOs arent all bad people. But we were all train ed to evaluate (virtually everything) by examining numbers.
HR functions, albeit perhaps harder to quantify, ar e very quantifiable.
Thats it!!! That is the common ground!!!
Why, you say, do I have to make the move to the com mon ground and learn this new language instead of the CFO lear ning mine?
Copyright Robert Bartolacci 2013
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Financial Alphabet Soup
Summary:
Because the CFO is responsible to the shareholders to report the financial results of the organization. Your incent ive for learning that new language is therefore two fold.
1. It helps the CFO to justify to the shareholders why spending their precious resources on an HR initiative is nec essary.
2. Because you want to forward the success of the orga nization and the HR department. And, you have most likely a lready done a lot of hard work in managing and researching issu es it is like running the football for 90 yards. You might not w ant to run 10 more to score, but the distance is short, and scori ng will benefit the organization and your department.
Copyright Robert Bartolacci 2013
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Financial Alphabet Soup
You win!!!!
Copyright Robert Bartolacci 2013
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